The "Wall Street" Effect on Incumbent Vote Share in the U.S. House of Representatives, 1982-2008

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Author

Steiner, James E.

Abstract

Much research has been done regarding the effects of macroeconomic conditions on the electoral chances of congressional candidates--incumbents, in particular--with mixed results. However, most of the models tend to ignore potential effects of equity market performance on congressional elections. My hypothesis proposes that positive equity market performance in a current election cycle predicts a positive effect on incumbent electoral vote shares, even after controlling for state- and national-level macroeconomic effects and the political environment. I specify and test a principal component fixed effects regression model with continuous variables measuring incumbent vote share in elections to the U.S. House of Representatives and the performance of the S&P 500 stock index over variable time periods in order to isolate a "Wall Street effect." This model is used to test whether there is a statistically significant effect of US equity market performance on incumbent candidate vote share. I find that short-term positive stock market performance predicts an increased vote share for incumbent congresspersons, on average, controlling for economic and political factors. Positive long-term market performance, on the other hand, appears to reward only Democratic House incumbents using the same controls. Republican House incumbents benefit from negative long-term stock market performance, indicating voters may take conventional wisdom regarding party differences with respect to business and regulatory policies into account when making voting decisions.